Perspectives on the global economic meltdown- (Nov 28 2010)

paramu · Post by **paramu** » 30 Sep 2011 03:48

http://www.caseyresearch.com/articles/d ... money-dies

TGR: Many pundits and economists still project growth in China, albeit at a lower rate, and anticipate further expansion of the middle class.

DC: The 21st century will be the Chinese century, but the distortions and misallocations of capital that have occurred over the last 30 years—notwithstanding the truly phenomenal progress the country has made—are serious and have to be washed out. I am a huge bull on China for lots of reasons, but I am bullish for the long run. I think it is going to go through the meat grinder over the next 10 years. I don't know how it will come out; maybe China will break up into five or six different countries. Actually, that would be a good thing. Most of the world's nation-states are artificially constructed and too big to be manageable as political entities.

TGR: Your outlook on China fits right in with something you've been saying for years—about this being the "Greater Depression," which is also the topic of your upcoming presentation at the sold-out Casey Research/Sprott Inc. "When Money Dies" summit next month in Phoenix. Your opening general session talk is entitled, "The Greater Depression Is Now." We are now four years into it, based on your 2007 start date.

DC: Actually, depending on how long a historical scale you look at, you could say that, for the working class in the U.S. anyway, the depression started in the early 1970s. After inflation, after taxes, their take-home pay hasn't risen in real terms for 40 years. But the definition of a depression that I use is "a period of time during which most people's standard of living drops significantly."

Net savings shows that you're living within your means and putting aside capital for the future. In the U.S., people have been living above their means for many years—that is what debt is all about. Debt means that you are borrowing against future production, which is exactly what the U.S. has been doing.

vishvak · Post by **vishvak** » 30 Sep 2011 10:55

From http://www.indianexpress.com/news/we-ne ... y/853661/0 sept 30
We need the biggest bailout in history

So this is coming from first world countries.

If Greece and other European countries are bailed out, does not it mean that their debt is reduced?

If it is so, why not debt on India is reduced too, especially since India has offered monitory contribution for the same situation.

I think IMF is used to debt management so much, it has stopped thinking about cancelling/reducing debt mutually. So now European countries have this convenience of selective reduction of debt.

Our babus on the other hand look and copy the same attitude perhaps, though the babus are not in IMF. So instead of pushing of better debt management, our own babus have perhaps learnt art of managing debt from the IMF way.

From http://ideas.repec.org/p/wpa/wuwpif/0311002.html

Problems Of External Debt Management In India

Borrowing costs are not limited to interest costs. First, there is the dependency syndrome, which leads to the development of constituencies at the various levels of government to keep the borrowing momentum in full swing, actively supported by the multilateral development agencies. Second, there is an element of uncertainty in regard to whether the loans will be available when most needed, with the uncertainty increasing in the event of any demonstration of national self-reliance in area unacceptable to the stockholders of the lending agencies. Third, neither the civil servants negotiating the loans nor their political bosses have a direct responsibility for loan repayment, with the result that there is bound to be a relatively high degree of laxity in ensuring the best and most productive use of the borrowed funds. Fourth, there is hardly any evidence to indicate that countries with heavy indebtedness really can ever develop to such an extent that they will be free from such indebtedness.

Hari Seldon · Post by **Hari Seldon** » 30 Sep 2011 15:01

vishvak wrote:From http://www.indianexpress.com/news/we-ne ... y/853661/0 sept 30
We need the biggest bailout in history

So this is coming from first world countries.

If Greece and other European countries are bailed out, does not it mean that their debt is reduced?

It is not so. Quite the contrary. Greece is being lent more to pay off its earlier debts is exactly what is happening. 1 set of creditors (the TFTAs) are seeking to transfer their loan losses to another set of sucker-creditors (the SDREs, perhaps? Also, TFTA taxpayers in the 'rich' world). The greeks aren't going to be helped either way with all these loan 'offers'. Talk of trojan horses bearing gifts. Its best they default early and rebuild afresh, if you ask me.

I think IMF is used to debt management so much, it has stopped thinking about cancelling/reducing debt mutually. So now European countries have this convenience of selective reduction of debt.

Tell me about it. Nobody anymore pretends that the greeks will repay anything lent to them at this dtage. Nobody. Even so, a modest suggestion that all interest payments required of greece be suspended so that at least the principal can be repaid is treated as obscenely radical only. Wah re duniya. I can understand the domino effect it will have though. Fact is there's debt in the world than can be repaid. All this jostling is about who'll not get repaid only.

End of the day, when the greeks do default nobody'll get a dime out of them, I suspect.

Neshant · Post by **Neshant** » 30 Sep 2011 20:30

main reason the European countries wanted to install their stooge Laggarde as chief at the IMF is to have some of that Greek default be borne by other countries. An offloading of losses onto suckers down the line.

its criminal that the IMF chief 'loans' money to Greece with zero collateral knowing full well it will default.

shyamd · Post by **shyamd** » 01 Oct 2011 13:07

CDS of Morgan stanley shot up due to potential exposure to French banks.

svinayak · Post by **svinayak** » 01 Oct 2011 13:31

http://www.telegraph.co.uk/finance/comm ... r-all.html

Will 'Chindia' rule the world in 2050, or America after all?
With a small tweak in assumptions and the inexorable force of compound arithmetic, Citigroup and HSBC have come up with radically different pictures of what the world will look like in 2050.

It does not require miracles of performance for this to occur. Catch-up countries merely need to keep reforms on track, open markets, “don’t be unlucky, and don’t blow it”, and let convergence theory do the work for them.

Having rid themselves of calamitous nonsense – Maoism, the Hindu model, and other variants of central planning or autarky – and having at last achieved a “threshold level” of law and governance, nothing should stop them, or so goes the argument.

“Sustained growth prospects in per capita incomes across the world have not been as favourable as they are today for a long time, possibly in human history.” Global growth will quicken. GDP will quadruple again from $73 trillion to $378 trillion by 2050 (constant US dollars).

svinayak · Post by **svinayak** » 01 Oct 2011 13:45

http://www.telegraph.co.uk/finance/fina ... ldman.html

World is heading for 'Great Stagnation', says Goldman
There is a growing risk that the global economy will move from the 'Great Recession' into the 'Great Stagnation', according to economists at Goldman Sachs.

Goldman looked at 150 years of macroeconomic history and found that the probability of stagnation is much higher after financial crises. The longest-lasting period of stagnation took place in India for almost two decades following the early 1930s.
By Angela Monaghan, Economics Correspondent1:18PM BST 30 Sep 2011 186 Comments
Stagnations typically mean long periods of sluggish growth of about 0.5pc, low inflation, rising and sticky unemployment, stagnant house prices, and lower returns on shares, they said.
There is a 40pc chance of the current situation developing into a period of stagnation among developed economies, Goldman calculated.
"Trends in Europe and the US are so far still following growth paths that would be typical of stagnations," they said in a note.
"Given those risks, whether these countries manage to avoid a ‘Great Stagnation’ by a pick-up in the recovery is likely to depend on policy being able to restore confidence and putting in place reforms that can decisively jolt growth".
Looking at 150 years of macroeconomic history, they found that the probability of stagnation is much higher after financial crises.

Stagnant periods tend not to be volatile and so lack sharp new recessions or significant recoveries.
The research by Goldman found that about 60pc of stagnations that occurred since the late 1800s in dozens of countries - both developed and emerging markets - did so in the post Second World War period. About 24pc of them lasted more than a decade.
The longest-lasting period of stagnation took place in India for almost two decades following the early 1930s.

Hari Seldon · Post by **Hari Seldon** » 01 Oct 2011 15:10

A true sidhuism from twitter, couldn't resist but put it up here...

Dear Friends, What is the new definition of LIQUIDITY in many countries today? When you look at your investments and wet your pants.

ROFL

Satya_anveshi · Post by **Satya_anveshi** » 01 Oct 2011 17:18

Hari garu..when you talk about wet pants I had my moment yesterday when the following news came out (I see that no one posted):

Forecast says double-dip recession is imminent

NEW YORK (CNNMoney) -- The U.S. economy is staring down another recession, according to a forecast from the Economic Cycle Research Institute.

"It's either just begun, or it's right in front of us," said Lakshman Achuthan, the managing director of ECRI. "But at this point that's a detail. The critical news is there's no turning back. We are going to have a new recession."

However the news headline said - "recession inevitable" and thus causing wetness all over.

Singha · Post by **Singha** » 01 Oct 2011 20:16

I recall seeing him on CNBC sometimes giving comments.

Neshant · Post by **Neshant** » 01 Oct 2011 21:37

"It's either just begun, or it's right in front of us," said Lakshman Achuthan, the managing director of ECRI.

It has not 'just begun' nor is it in front. These economists are clueless! Its the same recession! I've been pointing out the bogus-ness of the recovery claims for a long time now. I find it astonishing how these clueless economists continue to be given lots of media attention.

Let me spell it out. There has not been a single new productive industry that has emerged since 2000 that generates well paying jobs on a vast scale. Unless and until that occurs, there is no recovery.

Running up govt debt, stock market rigging, scamming, offloading losses of private banking cartels onto taxpayers pumping green shoots propaganda, financing & high-rolling has never been recovery nor will it ever be. It just banking crooks making off with what they can from the productive economy before the collapse.

When the useless middleman industry known as banking & financing starts shrinking, that's when you can say prospects have improved for recovery. Anything that reduces the size of the useless middleman can only mean lower cost of doing business for the real economy - which is a good thing.

Neshant · Post by **Neshant** » 02 Oct 2011 00:23

This will result is NRIs moving their funds from American banks operating in India to government banks in India. Unlike American banks in India, SBI (State Bank of India) which is govt owned is not answerable to any foreign govt. People will stop doing business with these foreign banks as their privacy is unsafe. Do not trust foreign owned banks in India.

By the way, how is it even legal for a bank operating in India (foreign owned or not) to be handing over client information to a foreign govt?

----------------

U.S. client tax indictment raises pressure on HSBC

NEW YORK: U.S. authorities charged an Indian-American client of HSBC Holdings on Wednesday with evading U.S. taxes through the global bank's India operations, increasing pressure on Europe's second largest bank over its offshore private banking services.

Satya_anveshi · Post by **Satya_anveshi** » 02 Oct 2011 02:21

Neshant wrote:By the way, how is it even legal for a bank operating in India (foreign owned or not) to be handing over client information to a foreign govt?

Neshant,

Let's not be tactically brilliant but strategically blind. If it is a policy option, weigh in the pros and cons of a consistent policy for inflows and outflows. Bigger problem in India is corruption at higher places involving gazillions of dollars and other sources of black money that flows out with nothing in tax benefits and/or tracking mechanism for us.

Indian working class sending money to India is not because of tax shelter. Given the returns profile in the US investment vis a vis returns profile in India, money is not going to stop flowing just because of this policy. Savers will still be better off giving 10-20% to India in taxes. Further tax rates in India are generally higher than in US so even accounting for it will be a net gain for India.

Don't we keep complaining of Indian money in swiss bank and how those evil people don't share information with India?
Did you hear of Anna revolution going on in India?

If India takes a consistent policy of mutual and mandatory sharing of information with all countries especially with first world countries, we will still stand to benefit overall.

Infact, IMO, we should totally encourage US (or even provoke with some ghost cases) and India to get into this sort of sharing with a small administrating fee for sharing such information. We could tie this fee to US VIJA and some other H1 type unfair trade related fees that currently go unresponded by India.

Remember our list will be smaller and more targetted than theirs.

svinayak · Post by **svinayak** » 02 Oct 2011 07:01

http://blogs.reuters.com/globalinvestin ... same-boat/

We’re all in the same boat
SEP 30, 2011 10:16 EDT

The withering complexity of a four-year-old global financial crisis — in the euro zone, United States or increasingly in China and across the faster-growing developing world — is now stretching the minds and patience of even the most clued-in experts and commentators. Unsurprisingly, the average householder is perplexed, increasingly anxious and keen on a simpler narrative they can rally around or rail against. It’s fast becoming a fertile environment for half-baked conspiracy theories, apocalypse preaching and no little political opportunism. And, as ever, a tempting electoral ploy is to convince the public there’s some magic national solution to problems way beyond borders.

For a populace fearful of seemingly inextricable connections to a wider world they can’t control, it’s not difficult to see the lure of petty nationalism, protectionism and isolationism. Just witness national debates on the crisis in Britain, Germany, Greece or Ireland and they are all starting to tilt toward some idea that everyone may be better off on their own — outside a flawed single currency in the case of Germany, Greece and Ireland and even outside the European Union in the case of some lobby groups in Britain. But it’s not just a debate about a European future, the U.S. Senate next week plans to vote on legisation to crack down on Chinese trade due to currency pegging despite the interdependency of the two economies. And there’s no shortage of voices saying China should somehow stand aloof from the Western financial crisis, even though its spectacular economic ascent over the past decade was gained largely on the back of U.S. and European demand.

Despite all the nationalist rumbling, the crisis illustrates one thing pretty clearly – the world is massively integrated and interdependent in a way never seen before in history. And globalised trade and finance drove much of that over the past 20 years. However desireable you may think it is in the long run, unwinding that now could well be catastrophic. A financial crisis in one small part of the globe will now quickly affect another through a blizzard of systematic banking and cross-border trade links systemic links.

Neshant · Post by **Neshant** » 02 Oct 2011 09:13

However desireable you may think it is in the long run, unwinding that now could well be catastrophic. A financial crisis in one small part of the globe will now quickly affect another through a blizzard of systematic banking and cross-border trade links systemic links.

sounds like the author is trying to con people into handing over their hard earned money to banking crooks in endless bailouts.

Neshant · Post by **Neshant** » 02 Oct 2011 09:17

Satya_anveshi wrote:If India takes a consistent policy of mutual and mandatory sharing of information with all countries especially with first world countries, we will still stand to benefit overall.

Don't be naive. You seem to be under the illusion that the sharing is reciprocated. If I may spell it out - the sharing expected is only one way. That is banks operating in India handing over their client's data to the US but not the other way around.

Its like the cooperation on terrorism. Cooperation means you cooperate with us and we'll just continue subsidizing the country promoting terrorism against you. Were you under the impression that cooperation on terrorism was a 2 way street?

Move your m0nie$ to govt banks in India and avoid dealing with US or foreign banks operating in India. The Indian govt banks will tell any foreign govt to take a walk if it asks for client data. Again do not trust foreign banks operating in India. They serve a different master.

As for the Swiss, London..etc they will be doing what they are doing regardless. Their livelyhood depends on attracting corruption & bribery money from around the world to the benefit of Switzerland & Europe.

Airavat · Post by **Airavat** » 02 Oct 2011 09:36

Investing in Eastern Europe

svinayak · Post by **svinayak** » 02 Oct 2011 09:46

Home prices are unlikely to recover before 2020 and mortgage defaults will persist for years, says a survey of bank risk managers out Friday.

Fuse | Getty Images

The survey conducted by the Professional Risk Managers’ International Association for FICO, found that 49 percent of respondents do not expect housing prices to rise back to 2007 levels for another nine years. Only 21 percent of respondents said they would.

The findings, which authors called “a decidedly pessimistic outlook”, are a sharp reversal from cautious optimism the survey respondents expressed late last year and in early 2011.

In addition, 73 percent of surveyed bankers say they expect mortgage defaults to remain elevated for at least another five years. And 46 percent believe mortgage delinquencies will increase over the next six months.

Only 15 percent of respondents expect mortgage delinquencies to decline during that period.

“While the housing sector will almost certainly gain strength during the next nine years, many bankers clearly believe prices will remain depressed for half a generation,” said Andrew Jennings, chief analytics officer at FICO.

Bankers concerns spread beyond the housing market.

A large number of respondents says they also expect to see an uptick in delinquencies on auto loans, credit cards and student loans.

Small businesses are expected to continue face a challenging credit environment. More than one-third of respondents forecast an increase in delinquencies on small business loans.

skumar · Post by **skumar** » 02 Oct 2011 11:06

Neshant wrote:main reason the European countries wanted to install their stooge Laggarde as chief at the IMF is to have some of that Greek default be borne by other countries. An offloading of losses onto suckers down the line.

its criminal that the IMF chief 'loans' money to Greece with zero collateral knowing full well it will default.

In Feb 2011, the IMF published a paper advocating a larger role for the SDR. http://www.imf.org/external/np/pp/eng/2011/010711.pdf

In May 2011, Dominique Strauss-Kahn is forced to resign as head of the IMF on charges that now appear to be trumped up - the deed was morally incorrect no doubt but not criminal. Europe gets Lagarde as the consolation. Europe will extract its pound of flesh by using IMF funds and prop up the Euro.

The US is enjoying the recent European discomfiture and really wants the Euro to weaken so that the status of the dollar is unchallenged.

ramana · Post by **ramana** » 02 Oct 2011 21:24

From Spinster:

"World is heading for 'Great Stagnation', says Goldman" BRF economic melt down.

Almost a year ago I predicted that this is the way its going pan out.

Gurvu garlu I predicted this culmination.

Inflation ------>recession ---> Deflation -----> stagflation -------> Stagnation

Inflation in commodities
Recession in manufacturing and consuption
Deflation of commodities
Stagflation (which is will start after the Greek bail out starts) Stagnation in PIGIS and inflation in Germany & France because of Euro QE1. and also pumping of dollars into Eurozone to keep Euro afloat and also weakening dollar (which started to go up after Fed said recession in the air) so as not make nascent manufacturing activity die in US

Pleas check my posting about a year ago in world eco melt down..

Actually he wrote it right in 2009 itself....

Hari Seldon · Post by **Hari Seldon** » 03 Oct 2011 05:32

^^^Why is spinster garu not on brf anymore, ramana sir? Just curious. His insights are missed on here.

Prem · Post by **Prem** » 03 Oct 2011 05:36

http://www.zerohedge.com/news/out-hard- ... orse-china
Out Of The "Hard Landing" Pan And Into The "Crash" Fire - Are Things About To Get Even Worse For China?

Over the past week one of the more hotly debated and market moving topics was the resurgence of speculation that China may be on the verge of a "hard landing." To a large extent this was driven by renewed concerns that the country's debt load, especially at the local government level, will be a substantially greater hindrance to growth and hence, concern than previously thought. This was paralleled by concerns that Chinese growth will likely slow down substantially more than previously expected, even as inflation remains stubbornly high. The result: a move wider in Chinese CDS in the past week whose severity was matched only by a similar move around the time of Lehman, when the world was widely seen as ending. Concerns that delusions about decoupling are precisely that (courtesy of 3 out of 4 BRICs printing a contractionary sub-50 ISM also led to the biggest drop in the Hang Seng index since 2001, after it tumbled 22% in Q3 as fears that a Chinese slow down would impact all developing economies with an emphasis on East Asia. Yet if a Hard Landing is all it took to disturb the precarious balance in which China always somehow always ride off into the sunset having rescued the entire world, we wonder what would happen if the market started expressing concerns that a Hard Landing is the optimistic case, and nothing short of a Crash Landing may be the baseline. Because according to the Economist, which informs us of a very troubling development out of China in which foreigners may be about to face a new entitlement funding tax for all domestic workers beginning October 15, and hence a surge in overall labor costs, then a "Crash Landing" may well be in the cards for the world's biggest marginal economy

The climate for foreign firms in China is starting to feel frosty. Costs are rising, regulations are growing more burdensome. Local competitors are playing rough. Some, like Cosco, a shipping giant, have brazenly tried to renege on contracts. Others have used their political allies to squeeze out foreign partners. One Westerner reveals that two foreign firms on whose boards he serves have recently been forced to leave the country shedding their assets in fire sales. China is much too big and booming for foreign firms to ignore, and plenty of multinationals are doing splendidly there. But this latest turn of the screw may not be the last.Some would say that it would be economic and political suicide for China to proceed with this plan. But when things start to turn ugly, as they have in the past several months, centrally-planned (not to mention hard line communist) economies have been known to make less than rational decisions. China would not be the first, nor, judging by rising expectations that our own Fed Chairman may soon resume exporting outright inflation to China yet again via yet another monetary stimulus, last.

ramana · Post by **ramana** » 03 Oct 2011 07:17

hari, Do you check your gmail acct?

Hari Seldon · Post by **Hari Seldon** » 03 Oct 2011 09:45

Edited. new one I use now is brf dot hari at yahoo dot com.

Got it. OK. Lots of activity in the email group. Thanks!

Neshant · Post by **Neshant** » 03 Oct 2011 12:39

Prechter is giving some doom & gloom calls.

He's been predicting a crash since late 2009 and telling people to go short (bad calls in hindsight). I still think he's right overall but his bearish predictions are off the charts. He says don't even leave your $ in the bank. The FDIC is bankrupt and you won't see your money when the doors close. Take your money out and hang onto the physical cash or US treasury bills (he's been right on T-bills, they're up in value despite everyone predicting they would be going down).

I too think all you scrawny beggars should be out of the market in October. My spidey senses say the market will crash mid to late October. Sell all your stocks and move into cash 100% if you have not already.

For what its worth :

abhischekcc · Post by **abhischekcc** » 03 Oct 2011 14:14

Lo and behold, another article that presumes that China is affected by the normal laws of finance - that is debtor/creditor obligations.

They miss the point that in China, there is effectively only debtor and only one creditor - the Chinese government and the Chinese government, respectively.

Oh wait, that means that the debtor and the creditor are the same. IOW, all CPC has to do is to maintain enough money in the system for enabling day to day transactions, and they will be fine. No point in worrying about paying back debt obligations to yourself, eh?

Christopher Sidor · Post by **Christopher Sidor** » 03 Oct 2011 20:43

Bloomberg is reporting some very interesting facts

1) US money market funds have cut their exposure to European Banks and european commercial paper to $214 billion in August-2011 from $391 billion at the end of last year. Source

2) Bear Sterns went from 18 billion dollar cushion to approximately 2 billion dollar cushion within 4 days. To avoid such a repeat US Fed is asking US Banks to give their liquidity status in a so called 4G report, which has to be given every week. The interesting news is that US Fed might ask European banks to submit the same details to it. Source

3) Certain EURO-ZONE countries want to avoid a repeat of Lehman in europe. i.e. they dont want to see greece, portugal and possibly Spain and Italy go under. source

4) As France will most probably be the worst hit, French officials are now ready to use leverage, to expand the EFSF firepower. source
Wonder how will Germans and other countries react. It is speculated that Bear Sterns was leveraged 1 is to 32 before it collapsed. Basically it means that for every dollar that Bear Sterns had as cash or assets, it had a debt of 32 dollars. The comparable figures for commercial banks like JP Morgan, BofA, Wells Fargo, Bank of New York mellon was about 1 is to 10. These figures are for the year 2008 and not for 2011.

Neshant · Post by **Neshant** » 04 Oct 2011 07:11

Christopher Sidor wrote:4) As France will most probably be the worst hit, French officials are now ready to use leverage, to expand the EFSF firepower.

What is the meaning of "use leverage"?

Is this just another fancy term for printing money out of thin air? Or are they leveraging their citizen's earnings & future earnings against their bets? Maybe they are leveraging the IMF (world's taxpayer's money) for their bets since they got their stooge Lagarde sitting as the IMF chief.

vishvak · Post by **vishvak** » 04 Oct 2011 11:17

Christopher Sidor wrote:4) As France will most probably be the worst hit, French officials are now ready to use leverage, to expand the EFSF firepower. source

More on EFSF
http://en.wikipedia.org/wiki/European_F ... ommitments
From Enlargement part of the same page
Enlargement:

This will require ratification by all eurozone parliaments

kmkraoind · Post by **kmkraoind** » 04 Oct 2011 13:57

Anti-Wall Street Protests Spreading to Cities Large and Small - NY Times

As Neshantji has pointed out, the anger is brewing against middle-men leech industry.

svinayak · Post by **svinayak** » 04 Oct 2011 22:34

Boomerang: Travels in the New Third World
Michael Lewis (Author)

Lewis earned a masters degree in economics from the London School of Economics and went to work as a bond trader for Salomon Brothers before its scandals. His education and investment experience qualified him to write "Liar's Poker" in 1989, though I have no idea what qualified him to write such an entertaining and lucid description of the Wall Street culture of that time. Subsequently, I have read Lewis' "Moneyball" (in 2003), "The Blind Side" (in 2006), and "The Big Short" (in 2010). All of these books are very easy to read and hard to put down. They tell well-researched, interesting stories. In the case of "The Big Short" it helps to illuminate the origins of the financial crisis that broke starting in 2007.

In Lewis' latest book, "Boomerang," the subtitle is, "Travels in the New Third World." Lewis is not referring to Asian or Latin American countries here. He's talking about European countries that drank the elixir of seemingly endless and cheap credit prior to the bursting of the recent financial bubble. To say that cheap credit transformed the economies in Greece, Ireland and Iceland, for example, is to understate the impact of the financial bubble on these countries. Talk about a timely book--I am writing this during September 2011, and yet this book refers to the recent downgrade of U.S. debt, which occured only last month, beginning on page 171.

As in many of Lewis' books, there's a new person who you probably never heard of before to meet. In "Moneyball" it was Billy Beane, the general manager of the Oakland Athletics baseball team, and in "The Big Short" it was Steve Eisman, Michael Burry and others. This time it's Kyle Bass, the manager of a Dallas-based hedge fund, who Lewis makes sound both very insightful and eccentric. What would you call a man who owns a 40,000 square foot ranch located on thousands of acres in the middle of nowhere with its own water supply and an arsenal of automatic weapons? Or someone who would recommend "guns and gold" for his mother? Anyway, the gist of Bass' financial analysis is that mountains of shaky debt (arising from borrowings during 2002 - 2006 by people who couldn't repay) was essentially transferred from private institutions (like banks, etc.) to various governments, to the point that eventually markets would question the credibility of these governments. Put differently, the public debt of certain countries wasn't just the official public debt, but also that which came from supporting various private institutions.

Bass, Lewis tells us, visited Harvard professor Ken Rogoff (coauthor of "This Time is Different: Eight Centuries of Financial Folly," which I recommend), and found even Rogoff to be surprised by the magnitude of the public debt problems. Just as Bass bought credit default swaps on subprime mortgages prior to the financial crisis, Bass later bought credit default swaps on Greek government bonds, because he was convinced that Greece would be one of the first countries to experience real problems. Bass expected the swaps he purchased for 1,100 per year per million to eventually be worth 700,000.

Anyway, Lewis interviewed Bass years ago in preparation for writing "The Big Short," but he "left Kyle Bass on the cutting room floor." Lewis returned to Dallas two and a half years later, this time to find that Bass was betting most heavily against Japan and France at the time. Bass also had literally bought 20 million U.S. nickels (don't ask how), because he said the value of the metals in each nickel was worth 6.8 cents. The majority of this book is devoted to Lewis' travels in Iceland, Greece, Ireland and Germany, and to his discoveries during his travels. To get a flavor for the book and Lewis' writing style, here are some of Lewis' passages, in his own words:

Iceland: "Iceland instantly became the only nation on earth that Americans could point to and say, `Well, at least we didn't do that!'"

Greece: "As it turned out, what the Greeks wanted to do, once the lights went out and they were alone in the dark with a pile of borrowed money, was to turn their government into a pinata stuffed with fantastic sums and give as many citizens as possible a whack at it."

Ireland: "But while the Icelandic male used foreign money to conquer foreign places--trophy companies in Britain, chunks of Scandinavia--the Irish male used foreign money to conquer Ireland. Left alone in a dark room with a pile of money, the Irish decided what they really wanted to do was buy Ireland. From each other."

Germany: "Either Germans must agree to integrate Europe fiscally, so that Germany and Greece bear the same relationship to each other as, say, Indiana and Mississippi (the tax dollars of ordinary Germans would go into a common coffer and be used to pay for the lifestyles of ordinary Greeks) or the Greeks (and probably, eventually, every non-German) must introduce `structural reforms,' a euphemism for magically and radically transforming themselves into a people as efficient and productive as the Germans."

Quoting Lewis quote UCLA neuroscientist Peter Whybrow in the book's last chapter (on California's financial problems, not European countries), Lewis writes, "'Human beings are wandering around with brains that are fabulously limited. We've got the core of the average lizard.' Wrapped around this reptilian core is a mammalian layer (associated with maternal concern and social interaction), and around that is wrapped a third layer, which enables feats of memory and the capacity for abstract thought. 'The only problem is our passions are still driven by the lizard core.' Even a person on a diet who sensibly avoids coming face-to-face with a piece of chocolate cake will find it hard to control himself if the chocolate cake somehow finds him. Every pastry chef in America understands this, and now nueroscience does, too. 'In that moment the value of eating the chocolate cake exceeds the value of the diet. We cannot think down the road when we are faced with the chocolate cake.' ... Everywhere you turn you see Americans sacrifice their long-term interests for a short-term reward."

Love him or not, Michael Lewis is a talented writer, and I truly believe that most readers will have a hard time putting this book down. If you have enjoyed his earlier books, the decision to purchase this one seems to be a no-brainer. If you haven't read one of his earlier books, this one is worthy of your consideration.

vishvak · Post by **vishvak** » 05 Oct 2011 00:21

kmkraoind wrote:Anti-Wall Street Protests Spreading to Cities Large and Small - NY Times

As Neshantji has pointed out, the anger is brewing against middle-men leech industry.

A pic http://imgur.com/VpQAU . The man does not look like he is 60+ years of age.

Christopher Sidor · Post by **Christopher Sidor** » 05 Oct 2011 14:19

^^^^
Recently a CNN host was trying to undercut the protesters, by claiming that taxpayers made a profit on the bank bailout of 2008. She also went on to claim how she was harassed or prevented for trying to put this view point across.

This is a spurious argument to the core. Is the utility of bank bailouts being measured by the profits they make for Government of USA or should they be measured by the lives destroyed and affected? If the US government made a profit, why is the US unemployment rate at 8-9%? Does it mean that if US Government or Taxpayer made a profit, what they did was essentially right? And worse does this means that making a profit is the ultimate salvation, something which washes away the black deeds of everybody concerned.

VikramS · Post by **VikramS** » 05 Oct 2011 17:18

Neshant:

Prechter has been calling for a collapse since the day he was conceived.

The time to get out of equities was early May. We might be getting close to a near term bottom here. However there is talk of Germany leaving the Euro zone.....

http://pippamalmgren.com/commentary.html

Neshant · Post by **Neshant** » 05 Oct 2011 20:24

this sure as hell isn't the bottom nor anywhere close to it.

none of the bad debt has been washed out, its only been masked and temporarily at that. meanwhile the banks are more insolvent than ever with their leveraged bets on real estate having gone even further into the red and the govt money printing circus is about to end.

You been talking recovery, green shoots & cloud computiing since may and its all been going down. As I said, there is no recovery and there will be none until a new productive industry emerges that can generate high paying jobs on a large scale. No sign of that as far as I can see.

Neshant · Post by **Neshant** » 05 Oct 2011 20:27

Christopher Sidor wrote:^^^^
Recently a CNN host was trying to undercut the protesters, by claiming that taxpayers made a profit on the bank bailout of 2008. She also went on to claim how she was harassed or prevented for trying to put this view point across.

Since banks do not invent nor manufacture anything (other than scams), the so called profit has come at the expense of savers, creditors and wages of present & future generations with watering down of the currency and 0% interest rates. Not to mention putting out bogus inflation statistics.

With real estate having gone down even futher and leveraged bets on that crap having gone down some multiple of the decline, one wonders who's taking that loss. A lot of fake accounting is going on with junk being offloaded onto taxpayers ledgers.

Meannwhile all the big media outlets end up being propaganda stations for the govt & banking cronies with a stake in them.

Just about the only thing left doing independant, non-biased reporting & analysis of the news is alternative media.

VikramS · Post by **VikramS** » 06 Oct 2011 06:40

Neshant:

You attribute words and statements to others, which are purely your myopic interpretation of the what others are saying. You need to broaden your horizons.

==
Bad day here in Cuper.... First a work related shooting less than a mile from home at 4:30AM and then the news of Jobs passing. I am not much of an Apple or Steve Jobs fan, but as you read more about him, you do realize that he was something different.

His 1985 Playboy interview is a good read.
http://www.scribd.com/doc/43945579/Play ... Steve-Jobs

Vinit · Post by **Vinit** » 06 Oct 2011 09:16

Neshant wrote: Since banks do not invent nor manufacture anything (other than scams),

Many types of businesses in the service sector do not invent or manufacture anything themselves, including my travel agent and our neighborhood grocery-wallah.
Most Western banks have been badly managed and have followed disastrous policies, but that does not call for such blanket statements. Can you dwell on the implications of removing all banking completely?

Neshant wrote: the so called profit has come at the expense of savers, creditors and wages of present & future generations with watering down of the currency and 0% interest rates. Not to mention putting out bogus inflation statistics.

The profit came from two things (a) selling the shares that were acquired as part of the recapitalization of banks - the govt sold them at a higher price than it purchased them (b) selling credit assets that the govt had purchased from the banks which it sold back at higher prices.

Neshant wrote: With real estate having gone down even futher and leveraged bets on that crap having gone down some multiple of the decline, one wonders who's taking that loss. A lot of fake accounting is going on with junk being offloaded onto taxpayers ledgers.

Could you explain the fake accounting, please? Yes, falling real estate values and related instruments are a massive problem, but as far as I know, the banks and their shareholders are the ones taking the write-downs. Let's discuss real numbers - here, in US $ billions, are the amount of losses that these banks have taken in their books due to the sub-prime mortgage crisis: Bank Am 8; J P Morgan 6; Goldman Sachs 2; Citigroup 39; UBS 38; Merrill Lynch 29; HSBC 20.

I agree with you that the tax-payers are taking the hit in some cases, but I haven't heard of any false accounting.

I am no defender of the banks or the policies they have followed. They bear a significant part of the responsibility for this entire mess. But even criticism has to be logical and well-founded, not via blanket statements. Specifically, criticize the banks for:

(a) encouraging reckless borrowing by consumers, including mis-selling loans
(b) creating complex credit instruments and again, mis-selling them
(c) creating a moral hazard trap (the regulators and govt too take the blame here)
(d) creating a foolhardy risk-taking culture in their staff
(e) mis-managing their own liquidity and risk

But, saying banks don't do anything worthwhile etc. doesn't bear scrutiny.

Theo_Fidel · Post by **Theo_Fidel** » 06 Oct 2011 09:49

What is scary is that the 'gambling' arms of the banks have still not been separated from the legitimate retail & merchant operations. It is the bet taking arms that continue to underwrite things like zero fee accounts and even free checking. This entire ting could happen all over again. People want things for free and depend on bubbles to pay for everything.

Vinit · Post by **Vinit** » 06 Oct 2011 11:41

Theo, all banking arms are "legitimate"

This legitimacy, conferred by the regulators, is why the regulators are also to blame for the crisis.

There is a lot of agreement on splitting the retail part from the investment banks, because as you correctly say, the riskier investment bank can pull down the retail bank with it if not separated.

However: zero fee accounts, adjustable-rate mortgages, and NINJA loans were all created by the retail banks. So they're not fault free either, and need to be watched and regulated too; just splitting them away is not a complete solution.

What is needed is (a) a society not addicted to debt, and with reasonable financial knowledge (b) stronger and well-implemented regulation not beholden to financial interest groups, and (c) financial institutions with a culture of working for the long-term, rather than focusing on next quarter's profits and year-end bonuses.